Release Date: September 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alten (STU:AN3, Financial) reported a growth in the number of engineers, increasing from 50,000 to 51,480, indicating a positive trend in workforce expansion.
- The company achieved a 2.9% global growth in revenue, supported by mergers and acquisitions.
- Alten (STU:AN3) maintained a strong presence in the engineering sector, representing 73% of its business, and is ranked among the top five globally for engineering services.
- The defense, security, and naval sectors showed strong growth, compensating for weaknesses in other areas.
- The company has a healthy financial structure, generating EUR98 million in free cash flow, which supports its internal and external growth strategies.
Negative Points
- The EBIT margin declined to 8.4% from the usual target of around 10%, primarily due to a decrease in business levels and increased SG&A expenses.
- Alten (STU:AN3) faced challenges in the IT services sector, with significant pressure to reduce costs, impacting 27% of its business.
- The automotive sector experienced postponements and financial constraints, affecting revenue and project timelines.
- The company encountered difficulties in mergers and acquisitions, with high prices and limited availability of target companies.
- There is a slowdown in organic growth, with expectations of only 0.5% to 1% growth for the year, reflecting ongoing market challenges.
Q & A Highlights
Q: The new guidance implies organic growth of flat to 1% in the second half. What gives you confidence in this outlook given the headwinds in most end markets?
A: We have some countries and customers who have postponed projects that were expected to launch in September-October, mainly in civil aeronautics and auto sectors. We prefer to be cautious as these projects are postponed, not canceled, due to cash management issues. We hope to achieve at least 0.5% organic growth as these projects are expected to resume in 2025.
Q: How does Alten differentiate itself in India compared to local players, and what is the strategy for hiring more engineers there?
A: Alten aims to grow its engineer base in India from 9,000 to potentially 20,000. Unlike pure Indian players, Alten has a strong local presence in Europe and the US. We plan to expand through M&A, despite high acquisition costs in India. Most of our clients in India are international, and we are focusing on building strong delivery capacities with 10 centers across four cities.
Q: Can you provide more details on the automotive sector, particularly regarding project postponements and risks?
A: The automotive sector is facing challenges, especially with Tier 1 suppliers in Germany. OEMs in the US and France are slowing down due to financial reasons, not strategic ones. We hope these are temporary setbacks. The sector's offshore ratio is about 70%, and we expect it to stabilize rather than increase further.
Q: Given the pressure on IT services budgets, is there a strategic plan to grow this sector, or will Alten maintain its current market share?
A: Alten plans to grow its IT services from 14,000 to 30,000 engineers in the midterm. We aim to organize IT services around competence centers focusing on development, cybersecurity, and data analysis. This approach differs from our engineering strategy and is designed to enhance our market position.
Q: With the current cash flow and limited acquisition opportunities, would Alten consider increasing dividends or share buybacks?
A: Currently, we have no plans to increase dividends or initiate share buybacks. Our focus remains on strategic acquisitions, such as the Worldgrid acquisition, which will utilize some of our cash reserves. We aim to maintain a strong financial position to support future growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
